Stay away from this beaten sector: Traders

Steel stocks have been surging.

Shares of AK Steel and United States Steel have rallied a respective 19 and 18 percent in just the past five trading sessions. But despite the move, traders warn to stay away from the beaten sector.

"We see [the recent rally] as pretty much played out," Erin Gibbs said Thursday on CNBC's "Trading Nation." Shares of AK Steel were down more than 3 percent Thursday, while U.S. Steel was up slightly.

According to Gibbs, steel stocks will continue to suffer as long as China's economy slows, and the reason for the recent run has more to do with cost savings in the companies' recent quarters than it does with core fundamental value.

"The reasons [the stocks popped] are short term in nature and related to improvements in just a few steel companies, not the industry as a whole," said Gibbs, equity chief investment officer at S&P Capital IQ. "This is a one-time event and not a long-term growth story."

Steel stocks have been in a steady downtrend for much of the past year, with the SLX, the ETF that tracks the sector, down more than 45 percent in the last 52 weeks. And for technical analyst Ari Wald, the charts are showing signs of steeper declines.

"In general, we think a lot of these commodity-exposed stocks will continue to find pressure because of falling commodity prices," Wald, chief market technician at Oppenheimer, said in the same "Trading Nation" segment.

He noted that while the SLX is coming off of a 52-week low, the trend is still quite negative. "We see resistance at $29," Wald said. "I think we get back down to the lows at around $23 a share."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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